The rise in money market rates was also attributed to a decline in speculative activities after tightened FX curbs, the crackdown on illegal bond trading, banks' filings to the PBOC and the China Banking Regulatory Commission (CBRC), to meet their loan-to-deposit ratio.

The argument so far has been that the Chinese central bank is "punishing some small banks which had previously taken advantage of the stable interbank rates to finance their purchase of higher-yield bonds," according to Ting Lu. Earlier this week China withdrew 4 billion yuan in liquidity through two bill issuances.

But Dong Tao at Credit Suisse pointed said "this wrestling, in our view, has heightened systemic risk in the financial system, creating policy uncertainty and has further induced market volatility."

He also argued that these rates haven't affected the "real economy" yet and that state owned enterprises (SOEs) are still flush with cash, though the small and medium enterprises are "struggling with liquidity." Tao thinks the SHIBOR has peaked but that rates will remain elevated.